Wanted: trusted adviser to CEOs. Knowledge of equity, debt, foreign exchange, and hedging products required. Ability to marshal global product resources to meet client needs essential.
Those are the requirements for what may be the most challenging role in commercial or investment banking today, that of relationship manager.
The title may vary - account manager, coverage officer, customer manager - but the objectives do not. A strong relationship-management orientation is essential to ensure that distribution of financial products is effective and affordable.
While the relationship-manager job is not new, the job description has changed a lot.
At commercial banks, loan officers, expert primarily in credit, have traditionally managed relationships. Transaction-oriented investment banks have a small cadre of senior bankers who, while effective in delivering corporate finance products, have been less successful in marshaling foreign exchange and other trading-related products.
True world-class relationship management is a tremendous challenge for companies of any size, but there are tremendous rewards for those that "crack the code."
Relationships have been a historical strength for commercial banks. But as loan margins have thinned and company access to capital markets expanded, many relationship managers have lacked the broader range of expertise required to serve clients.
Bankers Trust Co., which long eschewed the dedicated relationship role, is now planning to rebuild the function. The rationale: Perhaps some of its current difficulties with derivatives could have been prevented or mitigated if people had been focusing on the whole relationship over a long period, rather than on individual transactions.
In recent months, Citicorp's Citibank, J.P. Morgan & Co., CS First Boston Corp., and NationsBank Corp. have also announced initiatives intended to establish or reinforce the relationship orientation.
Whether these initiatives will succeed is yet to be determined. Still, each reflects important elements of a successful relationship strategy, including organizing to create franchise value in relationships that leverage product capabilities, fostering development of technical breadth and depth to accompany relationship skills, and structuring the pay system to support a relationship orientation.
The rewards question is challenging because it must account for performance over time. Because measuring value added in a multiproduct environment is difficult, most firms use either a two-dimensional profit- and-loss measure or a shadow crediting system to avoid disputes over revenue credits.
Whatever system is adopted, the key is to look at the cost of the entire delivery system for each product and client. When deciding annual bonuses, the pro rata cost of bonuses to relationship staff should be factored into the total bonus pool for a product. If performance is measured on the client dimension, then the reverse would be true.
Relationship professionals should have a longer time frame for their pay than their product-focused colleagues. Stock-based compensation is in vogue but may not be the best approach because it has a limited connection to a relationship manager's performance. By contrast, longer-term pay plans linked to specific client results over three to five years can provide a more meaningful incentive.
How best to approach relationship management will be a source of continuing debate. But it is becoming increasingly clear that those firms that develop effective relationship organizations, delivering a full range of products to meet client needs, will find themselves with an enduring competitive advantage - one that is far harder to clone than the latest product innovation.
Mr. Perro is national director of the financial services practice at Sibson & Co., an organizational effectiveness and compensation consulting firm. He is based in its New York office.